MAJOR POLICY ISSUES WHERE ECONOMICS PLAYS A ROLE THAT SHOULD BE ADDRESSED. SOME BASIC ECONOMIC POLICY REALITIES.
The Fed was slow to react to the signs of inflation as the Biden/Harris Administration started their spending spree. Powell, who now claims the Fed does not comment on fiscal spending policy, urged the Trump Administration to spend more. In contrast, he has blatantly showed his left leaning Keynesian roots by not chiding the Biden/Harris administration’s irresponsible spending generated by their deceivingly mischaracterized post pandemic legislative activity (i.e., the American Rescue Plan Act and the Inflation Reduction Act.
Clearly the Fed bought into Janet Yellen’s and the transitory inflation espousers of new monetary theory’s myopic belief that inflation was not going to last. After many months of consternation and hand ringing about the sharp rise in inflation and the Fed’s far too slow increase in the target interest rate from close to 0% to over 5%, it should have been more than obvious to all of the far-left Keynesian gurus that the dilemma faced by the Federal Reserve open market committee was how to address the 2% target rate of interest with Federal spending through the roof. Even the moderate Keynesian economic scholar, Lawrence Summers joined with the supply siders and other conservative economists in warning that radical inflation was inevitable. In previous articles, I have referred to the present economic quagmire created by the far left as “terminal stupidity.”
All the discussion of hard landing, soft landing, etc. by stock market pundits and short-sighted defenders of Keynesian domination of federal monetary policy, has fixated on the massaged definition of inflation and the hope that the Fed would successfully “thread the needle”– a soft landing without recession. All the while, middle- and low-income wage earners have been severely battered by the inflated cost of everything they have needed just to survive. At the same time, due to the steep rise in the cost of credit attributable to the Fed’s tightening policy, the availability of funds to small and medium size businesses all but dried up. Low- and middle-income wage earners have been facing recession conditions for the last couple of years, especially with the cost of their relevant basket of goods, rising during that time.
The issues faced by small and medium size businesses have not only been disastrous for entrepreneurs. It is also troublesome for the labor market going forward because small and medium size businesses employ over sixty percent of the workforce. With the increased prospects of rate cuts starting in September in reaction to recent weak employment and factory output data (Unemployment Rate 4.3% and ISM Index 46.8), the Keynesian and stock market gurus are now afraid that the Fed has been too late to the game to lower the target interest rate (as they were late in raising rates). The Fed’s problems are multifaceted. Not only has the fed’s post pandemic rate setting actions contributed to the inflation problem, but their accommodative posture regarding the Federal balance sheet has also been working counter to their inflation shadowboxing (i.e. inadequate quantitative tightening at the start of inflation coupled with slow rate increases). I refer to the efforts of the Fed as shadowboxing because any alleviation of the credit squeeze on small and medium size businesses due to a ¼ or ½ point drop in the target rate will only minimally improve the credit posture for those businesses, and the threat of a text book recession for middle- and low-income wage earners is almost meaningless because recession conditions have already been a reality for them for a couple of years.
The irresponsible ongoing level of government spending has become an untenably high percentage of GDP with inefficient government spending backing out more efficient private sector decision making. Yet many of the stock market gurus will point to positive GDP figures to bolster their positive stock market projections. From my viewpoint, they may get lucky in the short run if the Fed speeds up the timing of rate increases to avoid the specter of a recession. The margin of error for any projection for the economy and/or the stock market, either positive or negative, given the economic cacophony that the “Biden/Harris administration has created has to be extremely high. Do not be surprised if the economy is in worse shape than most analysts profess, and that aggressive Federal Reserve actions aimed at avoiding recession will lead to an extended period of slow to no growth. The economic mess the country is now facing was totally avoidable and could be ameliorated by the adoption of prudent fiscal and monetary policies that do not point in all directions at the same time like the “cheshire cat” in “Alice in Wonderland’.
The description of the economic policies of the Biden/Harris administration as “terminal stupidity” has been well earned because the economic mess that none of the economic pundits can “get a hold of.” and explain with any degree of clarity, was completely avoidable. To make matters worse, any projection of what type of landing is likely is also elusive because all of the policies that caused the present mess are still in place, camouflaged with tons of makeup. I can expect to be attacked by the legion of Keynesian warriors for the following statement, but it is my contention that the target rate of inflation should be 0% and not 2%, even though many of the hand wringers will espouse raising the acceptable target rate to help avoid a hard landing. It was the expressed intention of the founding fathers that there be a stable money supply that guarantees the stability of commerce over time and that guarantees that wage earners can enjoy the fruits of their labor through the storage of their savings. Over time a 2% interest rate diminishes the accumulated savings of workers that hold much of those savings in cash or cash equivalents. The founding fathers gave the responsibility of overseeing money supply stability to Congress who passed that responsibility to the Federal Reserve, whose tract record of stability has been more than suspect too many times. As mentioned earlier, the Federal Reserve projects a nonpolitical image, but far too often their decisions relating to rate setting emanate a differ odor.
The War on fossil fuel
The far left’s war on fossil fuels is an integral part of their misguided “new green deal” agenda that professes to minimize the negative effects of global warming (or is that “climate change”). The professed intention of their efforts would be commendable if their claims were backed up by credible optimization analysis. Looking at their prescriptions through the lens of an operations research study, their objective function (minimize the effects of global warming over time) is logical. The optimization of the global environment (isolated to global warming), however, requires the minimization or maximization of an objective function subject to such physical constraints as existing infrastructure and technological capability. I have looked for, but have not been able to find any analysis undertaken that adequately considers any such constraints which must be considered to determine an optimal path to “net zero”. This topic is discussed in greater detail in the paper “WHERE IS THE LOGIC? WHERE IS THE SCIENCE?” in Georgeconomics.com. (http://georgeeconomics.com/2022/06/26/where-is-the-logic-where-is-the-science-where-is-the-economics/)
The downside to the war on fossil fuels is twofold. First, it has not defined a path to “net zero” that is optimal. Second, the economic toll on the economy has been massive. Not only has the inflationary effect of the war on fossil fuels increased the cost of every good and service, but it’s unproportional impact on the wellbeing of middle-and low-income wage earners has been devastating. The hardcore anti fossil fuel position of Biden/Harris, as evidenced from their policy positions and rhetoric, is now being “powdered up” and reimaged by the deception that Harris will not ban fracking. That is blatantly deceiving because such a move would drastically cut domestic oil and gas production which would throw the country instantly into a recession, and if sustained, into a depression. The Biden/Harris administration is already choking domestic production through their excessively restrictive permitting policy, which makes her statement that she will not ban fracking in the future a ruse. This is a good example of a blatant policy makeover that is easy to unwind if the Republican’s counter this preposterous sham with a well-designed counteroffensive and/or if Harris and Trump ever have a fair and honest debate. Also, see the final paragraph in the International Policy Issues section.
The Border – From Border Czar to Never a Border Czar
This is one of the best of the Democrat’s image makeovers. The ‘rush to the center’ makeover of Kamala Harris would not be complete without the surgical removal of her responsibility of overseeing the border, which was assigned to her by, then semi coherent, President Biden at the very beginning of the Biden/Harris administration. The cost in terms of lives lost to drugs and the illegal influx of individuals from all over the world is high and impossible to accurately measure, but the there is one point that is clear. The Democrats will apply all types of makeup to cover up this policy failure with the assistance of their network media arm, and the Republicans should not underestimate their superior camouflage capabilities. There exists a plethora of videos and published statements which are part of the public record that can be utilized to effectively hang this deceit squarely on Harris for the public to observe.
International Policy Issues
The foreign policy blunders relating to the Middle East, Russia, China, etc. are too extensive to cover here. Against the backdrop of the domestic turmoil that the Biden/Harris administration has created, as discussed above, the problems created by misguided foreign policy are not high on the list of concerns for voters in the upcoming 2024 election. The world has a number of serious situations going on right now that could explode into greater regional conflicts, all of which have been fueled by the left’s inept handling of professed enemies and the display of weakness by the Biden /Harris Administration. I am curious to see how the Democrat party will twist reality in their efforts to camouflage their policy failures if one of the ongoing conflicts blows up into a greater regional war. I have always been suspicious of Biden’s handling of relations with China, given his family’s history of extracting money from China for access to the “Big Guy.”
The sad part of the two major conflicts referenced above, Russia’s invasion of Ukraine and the Israeli Hamas war instigated by Hamas, should never have occurred. The opposing parties in both conflicts have long histories of tension and distrust that always keeps peace a tricky balance (especially in the case of the Middle East conflict where the hatred is many centuries old). In both cases the fuses and the fuel that allowed the wars to start and escalate can be traced to the failed energy policies of the Biden/Harris administration. The Democrat party’s war on fossil fuel prevented the American oil and gas producers from maintaining their position as the global price setter on the margin that they achieved during the Trump Administration. They have been prevented from adding production in a timely manner due to the virtual shutdown of the permitting process. With OPEC as the global price setter, the price of fossil fuels rose to monopoly levels which filled the Russian war chest – which was empty when the competitive American market was the global price setter. The lifting of sanctions on Iran allowed them to collect over $100,000,000,000 selling oil and gas to China. This windfall has allowed them to increase funding to their proxies Hamas and Hezbollah whose major goal is to eradicate Israel. When bad parties are given lots of money terrible things happen – Surprise! Surprise! Stupid policies, such as the misguided war on fossil fuels, can only lead to bad outcomes, whether all the outcomes were intended.